Cotton Once Again a Competitor

As prices for corn, sorghum, and wheat sink, acres could shift into cotton, at least in Texas. Yet cotton producers, who are at the mercy of Chinese intervention policy, face more uncertainty than corn and soybean producers.

"Cotton acres in 2014 could increase to 11 million from 2013’s 10.3 million acres," says John Robinson, cotton specialist with Texas A& M University.

U.S. cotton acres began dropping from previous-year levels in 2007 and hit a low in 2009. Prices began rising in 2010 and then peaked at more than $2 per bale in 2011. Rising prices encouraged some shifting of acres into cotton in 2010 and 2011, but by 2012, cotton acres had once again given way to other crops.

World Panic

The 2010/11 price spike occurred as panic buying swept the world’s mills. The sharp increase in cotton prices spurred China to start building government reserves. Today China’s government owns somewhere between 45 million and 50 million bales of cotton, roughly half of the world’s cotton stocks.

"If China’s reserve stocks were in circulation, the market would be astronomically bearish," says Robinson. "It’s a set-up for future price weakness." Recently China tried to clear some of its reverses but little cotton was sold.

"The price offered was artificially high. It wasn’t a market-clearing price," says Robinson. So far China’s intervention policies have helped support U.S. cotton prices, but at some point China’s strategy could backfire.

Major Uncertainty

"It creates a lot of uncertainty for U.S. cotton producers for sure," says Robinson. "Their price is being controlled by the policy interventions of the Chinese."

Unless China does something drastic between now and planting, Robinson says cotton will compete successfully for acres this spring.

"Everyone—corn producers, wheat producers, cotton producers, soybean producers—are much closer to a break-even propositions this year," says Robinson. "It will be tight for cotton producers. There’s not much room for error."

In the southeastern United States, from the Mississippi River Valley to the Atlantic, Robinson expects some corn acres to shift into cotton this spring as some cotton acres shift into soybeans. The upshot, he says, will be a wash for cotton.

In Texas, though, corn, sorghum, and wheat acres could all shift into cotton. Area planted to cotton in Texas should increase by 500,000 to 1 million acres.

WADSE Unchanged for Cotton

According to USDA’s latest World Agricultural Supply and Demand Estimatesreleased Dec. 10, U.S. cotton estimates for 2013-14 were virtually unchanged from the previous month. Production was estimated at 13.1 million bales, as decreases in the Southeast were mostly offset by increases in the Delta. Forecasts for domestic mill use, exports, and ending stocks were all unchanged.

USDA projects the marketing-year average price received by producers to range from 70 to 78 cents per pound, unchanged at the midpoint but narrowed by a penny on each end of the range.